3 Nov 08 EURUSD Trade - looking for best entry point

[toyogo00]

Hi Neal,

Your last DailyForexCharts update has shown 4hourly EURUSD with resistance @1.2900. (see attached) - hourly chart is my trading time frame.

a. I entered short @1.2830 (initial SL @1.2900) when the uptrend resistance was broken, the TRSI for hourly (only SI) and 30mins (TR & SI) turned down. It went down to the low of 1.2787, so I adjusted the SL to BE+5 @1.2835. Too bad I was stopped out (only with -5pips).

b. I re-enter short @1.2850 after it retraced to 62% (Fib 1.2897 to 1.2787), it went down to 1.2831 and rebounced. I was not comfortable with the trade and exit at BE again (1.2855). It went up to 1.2880 before heading south again.

c. I re-enter short @1.2800 after it broke the previous low of 1.2787. I enter slightly early (before the break) as TRSI for hourly, 30min have turned down.

My question is:

a. Have I been too rash in trading in and out? or

b. Should I short @1.2830, put SL @1.2900 and let the trade play out itself? or

c. I realized that if I could have waited for hourly TRSI (both TR & SI) turned down, that inline with 30min TRSI (both TR & SI) turned down. I would have entered at a better shorting point @1.2820. (see attached) Do you think so? or

d. Do you have a better entry point? pls illustrate.


Regards,
Toyogo

[FibMaster]

I'm really struggling with this, can't find your entries and exits on the chart. Are they marked there? I think I'm looking at the wrong part of the chart?

Rather than spend more time on that aspect of the puzzle, I went ahead and posted some examples on how to trade that trend. I think this will answer your question.

See below.

[FibMaster]

Attached is a chart showing the 4-hour EurUSD with TRSI. The 4-hour trend is down during the periods of the blue vertical boxes that I have drawn there.

During those blue boxes, we can short this chart, purely based on a trend trade (TRSI), ignoring any other factors.

Now the trick is to determine where to enter, where to exit. If we are fortunate we make a profit, if not, the market will mess us around, at our cost..

[FibMaster]

When we check the 60 minute chart, there are no good signals during the 4-hour down-trend. The TRSI is barely crossing up in retracement, and not crossing down cleanly for clear shorting signals. See attached chart.

This happens when there is insufficient downward thrust, and/or the retracements are not significant enough to move the TRSI.

How to trade this? See next post.

[FibMaster]

For this type of price action, there are good triggers on 15 minutes charts and under. See the chart below for an explanation of an entry and exit trigger, on the same EUR/USD pair.

If you weren't quick enough to enter that trade, there was another, see the next post.

[FibMaster]

Here is a follow-on trade, still on 15 minute chart. Shorting the next retracement to SK Fibonacci resistance.

As long as the trend continues, we can short rallies. We are still within the blue rectangle that defined the 4-hour trend.

This follow-on trade was not as profitable, because the market lacked momentum, and provided a quick exit trigger. Unfortunately the marked does that sometimes. Still, a profit is in the bank...

There were more trades to be banked in the second 4-hour trend blue-box as well, not shown here. Note that this is a random example, based on a trader question. This is quite typical, a real-world scenario. This is not an ideal, stylized, pretty and perfect example. For that reason this is an excellent lesson.

In the next post I'll write some ideas, more advanced, about trade management etc.

[FibMaster]

This post is the result of a question from an actual trader. My response is to all traders, not just this one trader. So these suggestions are general for all readers, not addressed specifically to one trader.

The basics are that you want a trend, trade with the trend, and keep trading that trend. If the trend reverses, you will not be in that market anymore. That's the simple entry-level concept.

More advanced, is money-management and trade management. Whether you enter a full position on the first trigger, or add on subsequent triggers makes a difference. Whether you exit totally on the first exit trigger or you unload some of your position (partials) on multiple triggers also makes a big difference.

I am against "betting the farm" on each trigger. Eventually a losing trade will come, and there goes the farm. Better is to start with a small risk, add to positions on subsequent rallies, as the trend establishes itself. If the trend is taking out any FibLevels that get in the way, you can be more confident. If momentum increases, you can trade more aggressively. If the market is flaky, the trend is weak, subsequent Fibonacci levels stall the trend, then you have risked very little, and you can unwind your position carefully.

Control your risk based on market action. Trade small unless the chart is worthy of a bigger position, and let your positions build as the trend accelerates.

In this way, your winners are maximized, and your losers minimized. When the market delivers a great trend, you capitalize on it. When the market is bad for trading, you are not damaged as much because your risk is small.

[FibMaster]

Another separate concept. If you are nervous about your trading, or about the trend, you might exit on every TRSI trigger that is made against your position. If you are more confident about the market conditions, you may not exit on every TRSI crossing, as long as the pattern of price-action continues (swing highs and swing lows are in your direction), and also as long as major Fibonacci retracements are still holding the trend.

To fully take advantage of this, a trader must keep in mind that over-all context, the higher-time-frame picture, the strength of the market as it moves, and how the strength of the trend changes over time. TRSI is an excellent indicator for this, see details here;
http://www.fibmarkets.com/mem/archives/00000551.html
Once in a while I have a seminar/webinar on the TRSI indicator, check here for a listing;
http://www.fibmarkets.com/pro_seminars/index.html
.

[FibMaster]

On the subject of stop-losses... Novice traders will place a mechanical stop-loss that does not take into account market action, momentum, volatility. A Fibonacci based stop-loss takes all of those into account. Also, a novice trader will blindly cling to hope when the trade is not working out, wishing that the stop-loss will not be reached. It doesn't take much skill to realize that a trade is not working out. Watching price action and minor (lower-time-frame) Fibonacci levels, you can tell whether momentum is going against you. Why wait for your stop to be hit? You can exit well before the stop is hit, and you can re-enter if you like. As traders improve their loss management, the stop-loss will be merely a "disaster-stop", but the actual losses will be much smaller, because the stop-loss is not hit all that often.

[FibMaster]

This has taken a good part of my day, so I hope someone out there will gain something!

This series of posts contains powerful subjective techniques that you can learn, to give you a dramatic edge over the novice trader who mechanically bets the farm and blindly follows simple triggers.

Some of this will seem really simple and obvious, and some of it will not make sense yet. Some of it will not even be apparent, until the right moment, when you are confronting a situation in your trading day... If you are new to trading, print this out, come back and read this in a few months, you will be ready for some answers in the future.

Each trader has to compile the skills and techniques that will match his/her personality to best interact with the market & price action.

Yes, trading requires risk, skill and effort. Those who dream otherwise will be the people who put money into your account.

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